New York Central Railroad stock certificate , dated April 2 , 1932 . The certificate bears the image of “ Commodore ” Cornelius Vanderbilt , who won control of the railroad in 1867 via cutthroat competition and behind-the-scenes share purchases .
Collection of the Museum of American Finance
1980s “ deal decade ” included leveraged buyouts by private equity firms , strategic acquisitions by corporations taking advantage of lax antitrust enforcement and expansion into the US market by international companies . But it was the hostile takeovers — though they made up only a small percentage of the decade ’ s deals — that defined Wall Street in the ’ 80s .
That the public was so taken by battles between such unsympathetic figures says something about the high stakes and drama of hostile takeovers of that decade . A few people may have looked on with disgust as vulture raiders pecked at fat cat CEOs , but for everyone else , these clashes at the top of our largest companies were Hollywood material .
Thirty years earlier , nobody really knew what to make of fledgling corporate raiders picking fights with company CEOs . By the 1980s , such men were known as “ masters of the universe .” In many ways , the corporate raiders of the ’ 80s were not so different from the ’ 50s Proxyteers . Both groups featured aggressive and motivated young businessmen operating on the fringes of Wall Street . But while the Proxyteers struck fear into the hearts of CEOs with their ability to harness the discontent of public shareholders , the corporate raiders had something much more powerful at their disposal : ready cash . It came from Michael Milken and the vast market he created for new-issue junk bonds . Milken used his network of high-yield buyers to create a liquidity boom for young takeover artists .
GM ’ s Evolving Ownership Structure
General Motors is a good example of how ownership of America ’ s corporations evolved over time . In 1920 , most of GM ’ s shares were held by a handful of “ ownercapitalists ,” as Peter Drucker called them . This group included the DuPont Company and men , like Alfred Sloan , who sold their businesses to Billy Durant in exchange for stock . Over the next 30 years , most of the large individual owners retired from GM ’ s board of directors and passed away . In 1957 , the US government forced DuPont to dispose of its large stake in General Motors for antitrust reasons . By the 1960s , General Motors was a modern public company , run by professional managers and governed by a board of directors with little share ownership . From that point forward , institutions would dominate the company ’ s shareholder base .
General Motors itself played a major role in this evolution . Employee pension funds , which form one of the largest groups of institutional investors , are essentially a GM creation . While some pension funds existed when GM President Charles Wilson launched the GM Pension Fund in 1950 , they tended to be annuity plans holding fixed-income securities , or trusts invested entirely in the stock of the employer company . Wilson believed pension plans should have significant equity exposure , but he thought it was senselessly risky to bet workers ’ retirement money on the future of their employer .
He mandated independent management of GM ’ s pension funds , little or no investment in the employer company and a diversified portfolio with no large ownership stakes in other companies . Wilson ’ s guidelines immediately caught on with other employers — 8,000 new plans were launched within a year of GM ’ s — and were codified in the ERISA Act of 1974 .
Corporate America ’ s decision to broadly invest its employees ’ retirement funds in equities gave American workers a huge ownership stake in the country ’ s economic assets . Drucker argued that this made the United States the world ’ s first truly socialist country . But it also placed control of these investments in the hands of conservative , highly-regulated fiduciaries who limited their exposure to any single investment . Before Ross Perot pushed them to a breaking point , these kinds of investors were highly unlikely to intervene in the oversight of powerful companies like General Motors .
Ross Perot Sparks a Rebellion
On October 23 , 1985 , Perot penned a scathing five-page letter to Roger Smith , challenging his autocratic management style . He wrote :
In the interest of GM , you are going to have to stop treating me as a problem and accept me as —
— A large stockholder — An active board member
22 FINANCIAL HISTORY | Spring 2016 | www . MoAF . org